Paper finds little evidence of long-term scarring

Federal Reserve Bank of Richmond

A new study published by the Richmond Fed finds that short-term economic contractions do not usually cause long-term economic damage, or hysteresis.

In economic theory, “hysteresis is the idea that disturbances that are typically regarded as transitory”, like an interest rate hike, “can have very long-lived, or even permanent effects on real variables, such as output or unemployment”. People made unemployed by a recession may, for example, permanently leave the labour market, or fail to keep

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